What are the benefits of going straight to the manufacturer? What are the pitfalls of Liquidation sales? Are drop shippers a good idea?
Different sourcing methods offer different advantages. The type of source you use will often depend on the stage your business is at, or the amount of cash you have. When you enter the SaleHoo Directory, you will notice that the suppliers are separated into four sections – Drop shippers, Wholesalers, Liquidators, and Manufacturers – making it easy to find the correct type of source for your needs.
So how do you choose the best option for your business? We recommend using a number of different companies to source stock. This is the best way of avoiding a shortage should one supplier run out of stock during a busy season.
Drop shippers store all stock on site and process, package and post your orders individually as you make sales. The benefits of drop shipping are: not having to store stock on site, having all packaging and postage taken care of, and, because you only pay for the stock you sell, the risk of holding stock and being stuck with it is removed. Another big advantage of drop shipping is no minimum order, so you don’t need to have a lot of cash to get started.
On the downside, it costs to have someone else spend time processing and posting your order. Generally, you can plan on a $2-5 handling fee on top of the cost of each item. Thus, your profit margins need to be good or else the additional cost can really bite into the viability of your business. Plus, as you are not ordering goods in bulk, the price per unit will be slightly higher anyway. With that said, drop shipping works very well for many sellers.
Wholesalers buy stock in bulk from the manufacturer for a very low cost per unit. They then distribute it to retail stores and sellers. Buying wholesale is a great way of making medium level purchases. You can buy goods at a very low cost per unit from wholesalers, leaving plenty of room to profit. Once you have established an account with a wholesaler, you have a reliable, long-term supply.
And the cons? Wholesalers generally have minimum order requirements, usually around $100-$300US, designed to stop people from purchasing single units. There are plenty of great wholesalers in the SaleHoo directory and they are all willing to work with eBay and eCommerce sellers.
Liquidation sales occur when a store wishes to get rid of stock and liquidize assets for a move, or, when a company has gone bankrupt and assets are being liquidized to help repay debt. The main advantage of a liquidation sale is that good quality, near-new or new merchandise is sold off very cheaply. You can usually request an inventory of the sale before you go, so it’s reasonably straight forward to see whether there will be items of interest. The only difficulty with liquidation sales is that you can’t predict when they are going to be held, so they cannot provide a reliable, long-term supply of stock.
Clearance sales occur at the end of the season or the financial year when stores want to get rid of old stock, returns, and damaged goods. Like liquidation sales, clearance sales are designed to get rid of stock quickly, so prices are usually rock bottom. The difficulty with clearance sales is that you often have to buy by the pallet load – sometimes without knowing exactly what is inside. Occasionally, this can result in nasty surprises such as badly damaged items, worn clothing, or items that the store just couldn’t shift and will be difficult to sell.
Both liquidation and clearance sales can be wonderful sources, but they usually require spending $1,000+ and you may end up with stock that’s hard to shift.
Manufacturers produce the product and as the first link in the supply chain, they are able to give you the best prices. However, because distribution is not their primary concern, minimum orders are normally high. Typically you will need to order 1000+ units or by the container load, thus this is usually not a viable option for beginners! For established sellers, buying directly from the manufacturer is the most cost effective way of buying bulk merchandise. Alternatively, some SaleHoo members use the forum to group together to buy a container load of merchandise, sharing the shipping costs across the group. This is not something SaleHoo is directly involved in and the responsibility of organizing these ventures rests on the members.
Also see: Full container load (FCL) and Lesser container load (LCL)
Overall, we recommend mixing ‘n’ matching suppliers to get a good range of stock to supply your business. And if you do end up with a bunch of stock you can’t sell, try listing it as a wholesale lot on eBay. Many sellers have successfully used this technique to get rid of dead stock!